Delaying planned increase in state pension age by seven years from 2037-39 to 2044-46 will likely cost the Exchequer more than £60 billion.
There have been media reports that the government will no longer increase the state pension age from age 67 to 68 between 2037 and 2039, as had previously been announced in 2017. Under current legislation, this would mean that it would instead rise between 2044 and 2046. In a report, published today, IFS researchers set out some of the key considerations:
• Based on evidence from previous increases, delaying the increase in the state pension age from 67 to 68, would mean around 1 in 10 people would retire at age 67 rather than 68 between 2037 and 2044.
• Delaying the increase in the state pension age would cost the Exchequer £8-9 billion for each year that it is delayed. This means a seven-year delay would certainly cost the government more than £50 billion over the seven years, and more likely more than £60 billion. Most of this is simply due to paying the state pension for less long.
• On the other hand, income poverty rates among 65 year olds more than doubled, rising from 10% to 24%, when the state pension age was raised from 65 to 66. The government should consider what additional support should be provided to those on lower incomes, and those in poor health, in their mid 60s when the state pension age increases further;
• For people born in any given year, life expectancy has fallen, particularly in the most recent set of projections by the Office for National Statistics. For example, a man born in 1971 (and who turned 50 in 2021) is now expected to live to 83.9. In 2016, which is the information used in the first independent review of the state pension age, ONS forecast his life expectancy at age 50 to be 85.6. The equivalent life expectancies at age 50 for a woman born in 1971 was 88.1 back in 2016, but is now only 86.7.
• These falls in life expectancy certainly provides a rationale for not increasing it as swiftly as previously intended.
• However, it is still the case that life expectancies are rising when comparing people born more recently with those born in earlier generations. Even with a rise in the state pension age to 68, a man born in 1980 (who makes it to age 50) would expect to receive a state pension for 17 years, the same as for a man born in 1950 (who had a state pension age of 65).
• Equalisation of state pension ages for men and women has meant a bigger rise in the female state pension age, but a woman born in 1980 (who makes it to 50) facing a state pension age of 68 could still expect to receive the state pension for 20 years.
Jonathan Cribb, an Associate Director of the Institute for Fiscal Studies, said,
“Men and women born more recently are expected to live longer than their predecessors. That in itself is a strong rationale for a gradually increasing state pension age. On the other hand, higher mortality rates in recent years mean that any given generation is expected to live less long now than was expected at the time of the last pension age review in 2016. This provides a justification for delaying the rise in the state pension age from 67 to 68 that was previously planned for the late 2030s. But to do so would cost money. There are significant long-term fiscal challenges coming from the ageing population and delaying the rise in the state pension age will cost the Exchequer around £8-9 billion for each year of delay.”
Mubin Haq, CEO of abrdn Financial Fairness Trust, said:
“Raising the state pension age has costs, but the question is who bears it. The cost to the state is large but if there is a rise to 68 this is likely to lead to increased hardship for many. Moreover, this is likely to have the greatest impact on those not in good health, more likely to be from poorer communities, who are less likely to be able to work.”
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